July 25, 2007

CIBC study reveals secrets to small business success

By Grant Cameron

managing editor

Small business owners that have outperformed their peers in revenue growth over the past three years have certain characteristics, a study conducted by Decima Research for the CIBC has found.

The study, entitled Secrets to Small Business Success, found — among other things — that successful small business owners have higher levels of education and use the advice of professional advisors.

The study found that since 2001, small firms run by individuals with at least some post-secondary education enjoyed an increase in revenue which was 2.5 times that of small firms run by individuals with less than high school education.

Small firms run by those with post-secondary education enjoyed revenue growth of 31.8 per cent in the three-year period, compared to revenue growth of 12.3 per cent for small firms run by less-educated individuals.

The study also found that, over the past three years, entrepreneurs who, on a regular basis, use the advice of professional advisors experienced their revenues rising 76 per cent more than small firms without such advice.

The study examined small firms that are outperforming their peers in revenue growth over the past three years and identified the characteristics of the successful businesses.

The report is based on an analysis of responses to a 2004 CIBC Small Business Outlook Poll that was conducted between July 13 and Aug. 6.

The poll was based on a randomly selected sample of 1,829 Canadian small business owners defined as those businesses having between one and 15 employees including the owner and having revenues under $5 million for the year 2003.

The results are considered accurate within +/- 2.3 percentage points, 19 times out of 20.

Rob Paterson, senior vice president, CIBC Small Business Banking, said the poll found that success means different things to different entrepreneurs.

“Some are value builders who are looking for growth and others are lifestylers who are seeking long-term stability,” he said.

“Despite differences in motivation for opening a business and expansion plans, nearly two in three (63 per cent) of small business owners expect revenues to increase in 2005.”

The study also found that:

— Small firms that are incorporated saw revenues rising by 40 per cent more than unincorporated sole proprietors over the past three years.

— Small firms that receive outsourced work from other companies grew their revenues, on average, 61 per cent more in the past three years than firms that do not rely on outsourced work.

— Small firms that reported a high level of Web connectivity saw their revenues rise about twice as much as firms with no Web connectivity.

— In the past three years, small businesses that export more than half of their Internet-based sales experienced revenue growth which was more than double those that exported less than half of their Internet-based sales.

Paterson said the study also found that Canadian entrepreneurs take ownership of their success.

“Nine in 10 (91 per cent) of entrepreneurs agree with the statement: ‘The most important factor in the success of my business is me,’” he said.

The study reports that, in the past three years, single entrepreneurs have experienced almost double (86 per cent more than) the revenue growth of entrepreneurs who are married (48.3 per cent compared to 26 per cent).

Entrepreneurs who are divorced, separated or widowed experienced 17.9 per cent growth in the past three years.

While the finding that single people have experienced comparatively larger revenue growth may indicate that single people have more time to devote to their businesses, this finding may also be correlated with the age of the entrepreneur and the stage of the business, among other things, CIBC says.

The analysis also indicated that factors like gender, being born outside of Canada, having a home-based business or being forced into self-employment did not appear to have a statistically significant impact on total revenue growth in the past three years for small business owners.

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